Monday 30 December 2024
Your weekly SQE Prep Quiz has arrived
Dear Subscriber,
I hope you had a great weekend. Please see below for the question, the answer to the previous question and associated resources. This is the web version of this newsletter.
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Question: Sophia is a director of EcoWare Ltd., a company that manufactures biodegradable packaging. Without informing the board of directors, Sophia sets up her own company, GreenWrap Ltd., which produces similar biodegradable packaging and begins competing for EcoWare Ltd.’s customers. Sophia uses confidential information obtained from EcoWare Ltd., including customer lists and pricing strategies, to gain a competitive advantage for GreenWrap Ltd. When the other directors of EcoWare Ltd. discover her actions, they accuse Sophia of breaching her duties as a director.
Which of the following duties under the Companies Act 2006 has Sophia most likely breached, and what remedies might EcoWare Ltd. pursue?
- The duty to promote the success of the company; EcoWare Ltd. can claim damages for loss of profits caused by Sophia’s actions.
- The duty to exercise reasonable care, skill, and diligence; EcoWare Ltd. can remove Sophia as a director for failing to perform her duties competently.
- The duty to avoid conflicts of interest; EcoWare Ltd. can seek an account of profits to recover any financial benefit Sophia obtained from competing with the company.
- The duty to act within powers; EcoWare Ltd. can claim rescission of any contracts Sophia entered into on behalf of GreenWrap Ltd.
- The duty to declare an interest in a proposed transaction; EcoWare Ltd. can require Sophia to disclose all her dealings with GreenWrap Ltd.
Resource: Learn more about director’s duties by watching this video.
Free Study Planner: You can download our SQE1 Study Planner for the July 2025 exam by clicking here.
Answer and feedback to last week’s question: Oliver, a first-time car buyer, decides to purchase a car from Flash Motors Ltd. During negotiations, the salesperson assures Oliver that the car has “never been in an accident and has only done 15,000 miles.” Relying on this statement, Oliver purchases the car for £10,000. However, a few weeks later, he discovers through a mechanic that the car had previously been involved in a major accident and that the odometer had been tampered with to show a lower mileage. Oliver confronts Flash Motors Ltd., who claim the salesperson had no way of knowing the car’s true history and argue that they are not liable for the incorrect statements.
What type of misrepresentation is most likely involved in this case, and what remedies might Oliver be entitled to?
1. Fraudulent misrepresentation; Oliver can claim rescission of the contract and damages for deceit.
2. Negligent misrepresentation; Oliver can claim rescission and damages if he proves that Flash Motors Ltd. failed to take reasonable care in verifying the car’s history.
3. Innocent misrepresentation; Oliver can claim rescission of the contract but not damages, as Flash Motors Ltd. acted in good faith.
4. Fraudulent misrepresentation; Oliver can only claim rescission if he can prove the salesperson intentionally misled him.
5. Negligent misrepresentation; Oliver can only claim damages if Flash Motors Ltd. admitted they failed to check the car’s history.
Correct Answer: 2. Negligent misrepresentation; Oliver can claim rescission and damages if he proves that Flash Motors Ltd. failed to take reasonable care in verifying the car’s history. Feedback: In this case, the most likely claim is for negligent misrepresentation under the Misrepresentation Act 1967. Negligent misrepresentation occurs when a false statement is made without reasonable grounds for believing it to be true. Flash Motors Ltd., as a professional seller, had a duty to take reasonable care in verifying the accuracy of statements made about the car’s history, including whether it had been in an accident and the mileage. If Oliver can prove that Flash Motors Ltd. failed to exercise such care, he can claim both rescission (to undo the contract) and damages. Option 1 is incorrect because fraudulent misrepresentation requires proof that the false statement was made knowingly, without belief in its truth, or recklessly. There is no evidence that the salesperson intentionally lied. Option 3 is incorrect because innocent misrepresentation applies when the false statement was made in good faith and with reasonable belief in its truth. However, the failure to verify the car’s history suggests negligence rather than innocence. Option 4 is incorrect because fraudulent misrepresentation requires intentional deceit, which is not suggested by the facts. Option 5 is incorrect because negligent misrepresentation does not require an admission of fault by the party making the statement; it requires proof of a lack of reasonable care.
Thus, the best claim Oliver can make is for negligent misrepresentation, entitling him to rescission and damages if he can prove that Flash Motors Ltd. failed to take reasonable care in verifying the accuracy of the information provided about the car.
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All the best
Dr Ioannis Glinavos
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